When Does My Small Business Need A Financial Controller? #AskAcuity

Author: Matthew May | Categories: People, Processes
A recurring question we get revolves around entrepreneurs trying to figure out if they need a financial controller role in their company, and just why they need this middle layer in their accounting function.
There are two reasons for adding the controller resource:
1. Someone else makes you get a controller
2. You want more than your current bookkeeping is giving you.
Both reasons are very valid and common reasons to add a controller to the team. But controller is not a common term, and sometimes the unknown can be overwhelming especially when it comes to your business finances. So lets look at why you may need to get yourself a controller:

Someone else makes you get a controller

Someone else may require you to get a controller when you are, as a lawyer would say, “party to an agreement that requires US GAAP financials.” What does that mean in plain English? Let’s break that down for the most common agreements that we see require GAAP accounting.

Preferred stock investment by a venture capital firm.

If you read the fine print, they get this one in the agreement when they require an annual audit of your financial statements. Not only do you get to have the fun of hiring an audit firm, you also get to beef up your back office to meet the auditors’ requirements.

Bank loan

Check the covenants section where they frequently require an audit, review, or a compilation. If it is in your covenants, time to add a controller.

SEC filer

Public companies continue to say thank you Senator Sarbanes and Representative Oxley.

Government or private grant

Usually when you get a public or private grant, one of the conditions is an audit – which again means adding a controller to your team.

Agreement that requires US GAAP explicitly

Don’t pass go – plan to immediately add a controller.

Agreement that requires an ‘audit’, ‘review’, or a ‘compilation’

All three of these reports, by definition, require US GAAP accounting. To be sure this is all taken care of, you’ll need a back office that can produce US GAAP financial statements, i.e.: a controller.
Quick Tip:  “Party to an agreement” is code for someone else making you get a controller.
When you realize what a controller is, and why you may be required to involve one, the idea is far less overwhelming. In fact, it is nice when someone else makes you get a controller because all of these examples we discussed were bright line tests, no thought needed for an entrepreneur.
Now the second reason for adding a controller is a bit more nebulous and often occurs when you want more than your current bookkeeping is giving you.

You want more than your current bookkeeping is giving you.

This usually starts slowly, things are going well and you might not check the bank balance every day, but you want to see some data and know your financials don’t represent the full picture. So here are a few signs its time to upgrade booking to controller:

Upfront payments

Upfront payments tend to be a big culprit – while the customer funding is great, it distorts the actual picture because that might need to last 3 months or even a year. Enter a controller to help manage deferred revenue. Get the revenue in the period you are earning it so you can see how it aligns to your costs.

Scorecards

If there is financial data that your industry tracks and you want to see on a regular basis, consider getting a controller. A controller can develop and update your business scorecard.

Things Done Your Way

There may be some needs that are simply entrepreneur preferences. Things that fall into industry standards or projections that are overly expensive to automate and beyond the basics of bookkeeping. In those cases controllers are typically the key to getting that data in the form an entrepreneur wants.

Budget and Cash Flow Forecasting

Time to develop a budget or cash flow forecast, and you need someone to help keep it current.

Accounting Leadership

Maybe you have a bookkeeper or clerk and you need someone who knows accounting to oversee and make sure everyone is doing what they are supposed to be doing. A controller is a strong leader who can answer any and all accounting questions appropriately for your team.

Now What?

So you either want or need a controller … now what?  Well just because you need a controller doesn’t mean you need to go out and spend $85k – $120k on a qualified resource (and that is before you load the cost up for benefits and all the rest). So what are your options?

Old School

The old school approach of “let’s go add a body to the org chart”, would lead you down the road towards what accounting departments used to look like:

financial controller

Our Solution

The thing is with technology continuing to improve, you can implement stronger processes and drive out the people hours to make it so that you don’t need any of these roles full time for much of your early life cycle (many growing to $5 million in revenue before having full time needs at each level). This was the premise for or initial business plan (okay it was a napkin at the time). Now we have added to our bookkeeping plan a controller offering that offers the same premise.

financial controller acuity

Actual Experiences

Maybe the best way to some of our new way of thinking by going through some recent client situations:
Circumstance – venture funding:
Client who was using our $600/month basic bookkeeping service plus bill pay, got a term sheet from a venture capital firm, and closed a $3 million round that requires a financial statement audit.
How we solved it:
Supplemented the bookkeeper with a fractional controller who is involved weekly in the company for an additional $2,400/month to keep the total accounting cost in line with a $36,000 FTE.
Circumstance – upfront payments throwing everything off:
Client who was using our $300/month basic bookkeeping service, received up fronts payments that were distorting the financial picture.
How we solved it:
Supplemented the bookkeeper with a fractional controller who is involved on an ad hoc basis for $100/hour, an additional $100-500/month depending on how many new contracts come in each month.
Circumstance – acquisition:
Client who was using our $300/month basic bookkeeping service, got acquired by a Fortune 100 company.
How we solved it:
Supplemented the bookkeeper with a fractional controller who was involved daily through due diligence and monthly post acquisition during the transition.
Empowering Entrepreneurs
We have found that empowering entrepreneurs with knowledge helps lead to better decision making – hopefully this is a good start to helping understand your accounting needs and the role a financial controller plays, if not you can always ping us with your question just #AskAcuity on Twitter or here on our contact page!

 

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